# Pass-through entity

Canonical URL: https://olomon.com/financial-glossary/pass-through-entity
Markdown twin: https://olomon.com/financial-glossary/pass-through-entity/llms.txt
Category: Taxes & Business (https://olomon.com/financial-glossary/categories/taxes-business)
Also known as: Flow-through entity
Last updated: 2026-04-18

## Definition

A pass-through entity is a business structure — including sole proprietorships, partnerships, S-corporations, and most LLCs — that does not pay federal income tax at the entity level. Profits and losses flow through to owners' personal returns and are taxed at individual rates, often with eligibility for the Section 199A qualified business income (QBI) deduction.

## Key takeaways

- Pass-throughs avoid the double taxation of C-corporations.
- Owners may qualify for the Section 199A QBI deduction (up to 20% of qualified business income).
- Income and losses are reported to owners on Schedule K-1.
- Pass-through status interacts with self-employment tax, basis tracking, and state-level taxes — plan with a CPA.

## How Olomon thinks about this

_The following section is Olomon's first-party perspective, informed by our work building a financial system of record. It is intentionally separated from the neutral definitional content above._

Pass-through K-1s are notoriously late, complex, and lost. Olomon stores K-1s alongside the entity that issued them and the household that owns it, so the household and CPA can see, at any moment, every entity in the picture and the documents each one will produce.

## In-depth definition

Pass-through taxation is the default for most U.S. small businesses. It eliminates the corporate-level tax, simplifies distributions, and — since the Tax Cuts and Jobs Act — unlocks the QBI deduction for many service and non-service businesses below specific income thresholds.

## Frequently asked questions

### Are LLCs pass-through entities?

By default, yes — single-member LLCs are taxed as sole proprietorships and multi-member LLCs as partnerships. LLCs can also elect to be taxed as S-corporations or C-corporations.

## Sources

1. [Business Structures — IRS](https://www.irs.gov/businesses/small-businesses-self-employed/business-structures) — Internal Revenue Service (IRS). Cited for: Tax treatment by entity type.
2. [About Schedule K-1 (Form 1065)](https://www.irs.gov/forms-pubs/about-schedule-k-1-form-1065) — Internal Revenue Service (IRS). Cited for: Pass-through reporting.

## Related terms

- [Business entity](https://olomon.com/financial-glossary/business-entity)
- [S-corporation](https://olomon.com/financial-glossary/s-corporation)
- [EIN (Employer Identification Number)](https://olomon.com/financial-glossary/ein-employer-identification-number)

## Cite this page

Olomon Editorial Team. (2026). Pass-through entity. Olomon Financial Glossary. https://olomon.com/financial-glossary/pass-through-entity

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